Here’s why Eargo’s stock is imploding today

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What happened

Actions of hear (NASDAQ: EAR), a hearing aid maker, is sinking in response to the disclosure of a federal investigation the company made to investors after markets closed on Wednesday. The medical device inventory was down 68.5% on Thursday at 10:40 a.m. EDT.

So what

Eargo said net sales that increased 44% year-over-year to $ 23 million in the second quarter, but a recent SEC disclosure has caused investors to question the integrity of the company’s sales figures. On September 21, Eargo was told he was the target of a criminal investigation by the US Department of Justice.

Image source: Getty Images.

The investigation relates to insurance claims the company has submitted on behalf of clients covered by federal health plans. Eargo markets tiny rechargeable hearing aids that cost almost $ 3,000 a pair.

In August, Eargo raised its revenue forecast for 2021 to a range of between $ 93 million and $ 96 million. In light of the investigation, however, the company has withdrawn its financial guidance for the year.

Now what

Without a way to ensure that sales to insurers can stay in the company’s income statement, investment banks, including JP Morgan and Wells fargo have significantly lowered their ratings on starting the medical device.

It’s hard to guess what impact the DOJ’s investigation will have without further details. We know the company’s largest third-party payer launched claims verification earlier this year. Intrepid investors who plan to catch that falling knife will likely want to take a step back until we know more.

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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Cory Renauer has no position on the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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